The Employee Ownership Update

Corey Rosen

May 8, 1998

We at the NCEO now estimate that 6 million people work for companies that offer most or all of their employees stock options. Ryan Weeden and Ed Carberry, the NCEO's stock options project coordinators, say that at least 3,000 companies offer these plans. The numbers are difficult to estimate and are almost certainly too conservative. The estimates are based on companies the NCEO has actually identified as having plans, but it is very likely that there are many companies we have not yet identified. The number represents a 600% increase over 1991 estimates.

Worker Cooperatives in Europe

Worker cooperatives are a thriving sector of the European economy, albeit one that receives limited press attention. A new publication, Successful European Worker Cooperative (Coopexel, 1997), details the European experience by reporting on dozens of case studies from England, France, Germany, Ireland, Italy, Portugal, and Spain. Spain and Italy have the largest sectors. The Mondragon Cooperative Federation in Spain has over 100 enterprises employing over 20,000 people, while the cooperative network of the Valencia Autonomous Community has 1,200 cooperatives employing about 20,000 people. In Italy, over 4,000 worker cooperatives employ close to 100,000 people. France has 1,450 worker cooperatives with about 30,000 members. The cooperative movements in other European countries are smaller, generally employing a few thousand people in each country.

Sale to Foreign Company Does Not Disqualify Section 1042 Qualified Replacement Property

The Daimler Benz-Chrysler merger has prompted a number of questions about whether the acquisition of a U.S. corporation by a foreign corporation (or a merger of a U.S. and foreign corporation, as in this case) means that an investment that was qualified replacement property (QRP) under section 1042 of the Internal Revenue Code is still qualified. Under that section, owners of closely held companies can take the proceeds from the sale of stock to an employee stock ownership plan (ESOP) and indefinitely defer capital gains taxation by reinvesting such proceeds in QRP, defined as securities of domestic operating companies not receiving more than 25% of their income from passive investment. So what happens when an investor buys securities in a qualifying company that subsequently becomes foreign-controlled? There appears to be no restriction on the statute that would cause this to be a problem, assuming that the acquisition or merger is a stock-for-stock transaction. If it is for cash, however, then this would constitute a sale and would trigger taxes.